Hong Kong shares rebounded on Friday from an eight-month closing low the previous day, led by high yielding counters recently battered by worries that the U.S. Federal Reserve would taper monetary stimulus.
Mainland Chinese markets had a comparatively tepid rebound from six-month lows as money rates stayed tight. Technology and pharmaceutical counters, outperformers on the year, led index gains.
By midday, the CSI300 of the leading Shanghai and Shenzhen A-share listings was up 0.4 percent after ending Thursday at its lowest since December. The Shanghai Composite Index inched up 0.2 percent.
The Hang Seng Index climbed 1 percent to 21,093.5 after closing on Thursday at their lowest since October. The China Enterprises Index of the top Chinese listings rose 0.5 percent in what could be its first daily gain in 12 days.
Gains on Friday helped lift the H-share index from its most technically oversold level in almost two years but it is still down 4.4 percent this week. The Hang Seng benchmark is down 2.2 percent. Both are headed for their fifth-straight weekly loss.
Onshore China markets, trading only two days this week, are set for a second weekly loss. On the week, the CSI300 is down 3 percent, while the Shanghai benchmark is down 2.6 percent.
"Whether Thursday's low is the bottom in this sell-off is not as important as the fact that investors should now be taking this time to accumulate some quality names," said Larry Jiang, chief investment strategist at Guotai Junan International Securities.
On Friday, Hong Kong property developers were among the leading percentage risers among benchmark components. New World Development shares jumped 3.7 percent from Thursday's nine-month closing low.
New World's shares have now fallen 20 percent from a high on May 8 and are trading at a 31 percent discount to its historical forward 12-month earnings before Friday, according to Thomson Reuters StarMine.
After markets close on Friday, Galaxy Entertainment will take Esprit's place on the Hang Seng Index, while PICC Group will replace Aluminum Corporation of China (Chalco) on the China Enterprises Index.
In Hong Kong, Galaxy climbed 2.4 percent, Esprit gained 1.4 percent, PICC Group rose 2 percent, while Chalco dived 4.6 percent to its lowest since November 2008. Trade in these counters could spike as markets close for the day as passive funds based on these indexes adjust their holdings.
CASH SQUEEZE IN CHINA
Most banking names were weaker in the mainland as a cash crunch lingered, with China's Ministry of Finance failing for the first time in nearly two years to sell all of the 15 billion yuan worth of nine-month bills.
In Shanghai, China Merchants Bank slid 1.2 percent, while China Construction Bank (CCB) slipped 0.6 percent. The two largest listed Chinese brokerages, Citic Securities and Haitong Securities were also weaker.
Official Chinese newspapers on Friday blamed Thursday's steep losses on hot money flows. A Shanghai Securities News report, citing the views of an economist with Galaxy Securities, said that a rate cut was no solution to stopping those flows which were being underpinned by yuan appreciation prospects.